Brisk Lumia Shipments Give Nokia a Sliver of Hope

By

Sven Grundberg

Updated Jan. 10, 2013 8:23 p.m. ET

Nokia Corp. gave the first evidence that people are buying its newest smartphones, quelling investor concern that the Finnish giants bet on Microsoft Corp.'sMSFT-0.38% software was a strategic blunder.

The optimistic remarks, two weeks ahead of a fourth-quarter earnings report, helped send shares up nearly 19%. But Nokia executives sidestepped several questions, including whether the company can shore up its shrinking cash position.

Nokia said brisk sales of its new Lumia phones lifted overall smartphone shipments for the first time in a year, even though shipments are still well below year ago levels.

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The company said it shipped 4.4 million Lumia devices in the fourth quarter, bringing its total smartphone shipments to 6.6 million devices.

Investors have kept a close watch on Nokia's smartphone deliveries to gauge its ability to compete with the likes of Apple Inc.AAPL-0.87% and Samsung Electronics Co.SSNHZ0.00% At Thursday's close, Nokia's American depositary shares rose 18.7%, or 70 cents, to $4.45 on the New York Stock Exchange.

Chief Executive Stephen Elop, speaking to analysts and media in a series of phone calls Thursday, also said his company's pace of cost cutting and improved results at a wireless networks joint venture will help the company "achieve underlying profitability in the fourth quarter."

But Mr. Elop declined to discuss one of the most closely watched financial issues facing the company: liquidity. Nokia's cash pile has been shrinking ever since Mr. Elop announced his bold move to adopt Microsoft's untested operating system for mobile devices. The shrinking cash pile has caused serious concern about the company's long-term prospects.

By the end of September, Nokia's net cash position reached €3.6 billion ($4.8 billion), down from €7 billion when Mr. Elop became the company's chief executive in late 2010.

Scrambling to raise cash after six quarters of losses, Nokia recently raised €170 million by selling its suburban-Helsinki headquarters building to a Finnish property investor Exilion Capital Oy and agreeing to lease it back on a long-term basis. The deal, which Nokia first said it was pursuing in October, followed an earlier move to raise €750 million in a bond offering.

The company has also been selling patents and divesting itself of parts of its business, including an optical-network unit sold last month by its Nokia Siemens Networks arm, as well as the Vertu luxury phone unit, bought by a Swedish private-equity firm for an undisclosed sum last year.

Besides the cash crunch, it is far from clear whether Nokia's newest Lumia smartphones can continue to lure consumers in a cutthroat industry.

The company is banking on its Lumia line—particularly the newest 920 model that launched in November with sophisticated hardware—to help it regain ground.

While Nokia's Lumia shipment numbers look promising, they don't take into account pricing. Prices of Lumia phones were heavily discounted during the holidays.

In the U.S., for instance, Lumias were on sale for as little as $39 during the holiday spree on Amazon.com,AMZN-0.11% or $60 cheaper than the initial price tag. Other lower-end Lumias were available free at other carriers, such as T-Mobile USA and Verizon Wireless, with a two-year contract.

Nokia's chief financial officer, Timo Ihamuotila, said the average smartphone selling price was €185 in the fourth quarter, up from €155 in the third quarter. He didn't break out the average prices of Lumias, so it is unclear how much carrier subsidies played a part in sales.

ENLARGE

There is also a question of supply. Mr. Elop said the company has experienced supply problems, as certain mobile components have been in short supply, both for Nokia and other phone makers.

"Demand for our products has been greater than the available supply," Mr. Elop said. "If you went into a store to buy a new Nokia, there were times when our devices weren't available, so indeed we could have sold more Lumias."

The handset maker still expects its main devices and services unit—the bulk of which is made up of feature phones—to record a decline in sales in the fourth quarter of 2012, to €3.9 billion from €6 billion a year earlier, with total device shipments projected at 86.3 million units, down from 113.5 million.

The company also expects its results for the first quarter of 2013 to be pressured by seasonality and the competitive mobile environment, and it is currently battling to overcome supply constraints related to its latest products.

Nokia is due to report its fourth-quarter earnings on Jan. 24.

Mr. Elop has been on a crusade to cut expenses and simplify the company's business strategy.

Once the dominant player in the global cellphone business, Nokia has been forced to slash thousands of jobs and close facilities under Mr. Elop. These measures led to lower operating expenditure in the fourth quarter.

In addition to working on the core business of selling mobile devices, Nokia has focused on improving the performance of its wireless network joint venture with Siemens AGSIEGY1.77%, Nokia Siemens Networks.

The unit, which is in the midst of shedding 17,000 jobs, or nearly a quarter of its global workforce, has been refocusing its operations and is now concentrating on higher-margin mobile network sales.

Neil Mawston, an industry analyst at Strategy Analytics, said Nokia's performance is "a little mixed bag." While results are going to be better than expected, volumes for basic phones and Lumia smartphones were a little lower than he expected.

"Nokia has reached the trough and is looking into an L-shaped or U-shaped recovery," Mr. Mawston said.

He said the recent efforts on shrinking the company's size has been necessary. "Nokia has done a good job in cutting its costs," Mr. Mawston said. It's looking a lot leaner going into 2013."

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